The 2016 Annual General Meeting of Royal Dutch Shell plc

The following text is based on speeches delivered by Charles O Holliday and Ben van Beurden at the Annual General Meeting at Shell, in The Hague on May 24, 2016.

Charles O Holliday, Chairman, Royal Dutch Shell plc

Charles O Holliday

Before we start…let me highlight the disclaimer statement.

In a few minutes, Ben will give you a complete review of our performance and our forward thinking.

This marks the one-year tenure of me serving as your Chair and I’ve had over that year time to talk to stock holders and stakeholders around the world about your company. I have found it very enlightening with their questions and suggestions about what we can do to improve the company, so what I would like to do is take the two questions that I’ve heard the most over this past year and ask and answer them for you because I think they could be of interest to you in the room today.

The first question is: how is Shell navigating the current economic downturn?

As we all know, the world faced an economic crisis, which started in 2009. This led to a severe drop in many commodity prices, including oil. There was then a fairly fast recovery and an extended period of time with relatively stable and high oil prices, compared to historical standards.

But from mid-2014, the oil price began to decline. This continued in 2015 and into the first part of this year. Over the last few months we have seen a recovery, but it’s not nearly back to the price levels of 2013.

All this points to the fact that we are in a time of significant change in our business. As you’re aware, during such times there are opportunities and downsides.

Your board saw an opportunity in early 2015 and initiated the acquisition of BG Group, which is now complete. This deal is a major step forward for our company, which Ben will describe in more detail shortly.

As for the downsides of the change in commodity prices, the fact that 42 US based oil and gas companies filed for bankruptcy in 2015 proves that these are not easy times.

Managing downsides has clearly been a focus of your board and Shell’s management team. Shell entered this downturn with a strong balance sheet, and since then we have made many thoughtful choices about where we spend our capital, and how we manage costs.

Our collective efforts are working. Shell’s capital expenditure in 2014 was $37 billion. We brought that down to $29 billion in 2015, , a 20% reduction, a major step forward to deal with the current tides.

Moving on to our operating cost. In 2015, it was $41 billion, down from $45 billion in 2014. This included significant benefit from currency exchange rates.,

Let me share three examples, which highlight where we’re finding these savings.

In Qatar, Pearl GTL is the world's largest plant to turn natural gas into cleaner-burning fuels, and base oils for lubricants. At this gas-to-liquids plant, which is a joint development by Qatar Petroleum and Shell, catalysts are used to speed up chemical reactions.

Periodically, the catalysts need to be replaced. The team recently reduced the time it takes to do this by one third. This will result in more than $10 million per year in additional revenue, as there’s less interruption to production.

In the Gulf of Mexico, our Logistics team has started using more sophisticated software to schedule the use of service vessels. This has enabled us to develop optimal delivery schedules with a smaller fleet. All told, we have reduced the time in port by 50% and that took the number of service vessels from 59 to 27, resulting in cost savings of more than $100 million a year.

Moving on to information technology, which is so important to Shell’s business today. It’s important that we’re cost competitive with what we’re doing.

With that in mind, our Information Technology Group has gone through all our systems – in sales human resources and finance – and asked: how can we simplify? How can we get to one standard solution? How can we best incorporate BG’s system into our own?

In one area of the business, Jay found that we had 14 different customised systems. He cut it down to one. The one we will adopt is the one BG Group used. The savings through this adoption will be more than $25 million a year.

If you look back at all three of those examples, the one thing you will find in common is that if the oil price recovers we will still be having advantages to our company from these three examples. All the cost reductions have not been that way, but I think these are good examples of how the management of Shell are taking the right decisions going forward.

Now to the second question: how is Shell managing the energy transition?

The first thing to say is that there is an energy transition. And it’s well under way. What’s less certain is exactly how long the transition will take, and what fuel systems and distribution management systems will be used.

I assure you that your company, Shell, is not waiting around. We’re active participants in this transition.

Let me touch on a couple of landmarks from the external world. In Paris late last year, the nations of the world came together and agreed on important climate change and greenhouse gas reductions measures. Each country came up with targets. The key challenge now is for countries to act on their ambition, and achieve these targets.

Three months before the UN climate deal was reached in Paris, leaders from the same countries came together in New York to agree on the 17 Sustainable Development Goals. Tackling climate change was one of these goals. Others focused on poverty and clean water.

I bring this up because it’s important to put climate change in perspective with all these other critical needs. For example:

Today, more than one billion people in the world will not turn out the light switch when they go to bed tonight. It will not be because they forgot. It’s because they don’t have electricity.

In addition, before this day is over, more than three billion people will cook on a stove that will harm their health. The World Health Organization has found that, on average, four million people die every year because of poor indoor air quality. These stoves are a big part of that.

I was moved by a statement that Ban Ki-moon, the Secretary General of the United Nations, made a couple of years ago. “Energy is the golden thread that connects economic growth, social equity and environmental sustainability.”

I repeat: “Energy is the golden thread”. The very simple point I am making is the oil and gas that we produce today are providing very valuable things for people’s lives and that oil and gas makes up 50% of the global primary energy of the world

Transportation, as you can see, is very important to health, wellbeing, dealing with poverty and 90% of the transportation comes from oil.

My message to you is the products from this company today are making a big difference in the world. We must find a way to solve the climate issue and do more on the other issues. It is not either/or, it is both.

As a shareholder of Shell, you can be very proud of our efforts to help the world in meeting its important needs. But we will not stop here. We know we have more to do.

I’d like to draw your attention to a Shell publication called “A better life with a healthy planet”, which came out a two weeks ago. It’s available on our website, and is produced by our Scenarios team. If you read nothing else about how to make this transition to lower greenhouse gas emissions, dealing with the climate change issue, and also dealing with the poverty and other issues I’ve been talking about, I urge you to read this.

Another example of what we’re already doing today is the Global Alliance for Clean Cookstoves. The aim of this alliance is to have – by 2020 – 100 million homes, which means many hundreds of millions of people, cooking safely on a much cleaner cookstove than they do today. Shell is the largest private company in this alliance. We’ve contributed over $12 million dollars since the inception of this programme in 2010.

In addition, through the Shell Foundation, we have played a key role in setting up a business that has provided clean cookstoves to more than a million families in 40 countries. This is not philanthropy, but is a business enterprise that is continuing to grow. As shareholders, you can be proud of what your company is doing. Our oil and gas products are making the world a better place today.

Ben will go into more detail on the energy transition. But let me simply say: we’re a part of this transition. We’re a leader. And we’re not going to leave a billion people behind as we do it. We’re going to find a ways to help meet all the needs of the world as we do our bit in this major energy transition.

So, let me close by saying the answer to the first question is: we’re managing this downturn effectively and we must continue. The answer to the second question is: we’re a leader in the energy transition. And we’re determined not to leave anyone behind

We also recognise we’re in difficult economic times. You want returns on your investment. And we’re taking the steps in capital expenditures and costs to make sure we do that effectively.

I thank you very much for your time in listening today.

Now let me turn it over to Ben van Beurden, our Chief Executive Officer and member of the Board. Ben’s in his third year as CEO. You can tell a lot about somebody by how they perform in difficult times.

Well, there’s been a challenging oil market ever since Ben took over as CEO of this company. You can spot a real leader when times are challenging. Ben the floor is yours.

Ben van Beurden, Chief Executive Officer, Royal Dutch Shell plc

Ben van Beurden

Ladies and gentlemen, I am very pleased to be here today at our 2016 AGM.

As Chad said, there are significant changes underway in our industry, and at Shell.

This is an exciting time to be the CEO of your company and I’m looking forward to discussing Shell with you today.

Your company’s underlying earnings last year were $10.7 billion and we declared dividends and bought back shares worth some $12 billion combined.

In 2015, Shell’s production was almost 3 million barrels of oil equivalent per day, almost half of that was gas.

We produced some 2% of the world’s oil and our share of LNG sold across the world was 9%.

On your behalf, we invested $29 billion on capital projects and we also spent some $1.1 billion on research and development and some $120 million on the communities in which we operate.

All of this while paying some $10 billion of taxes and collecting another $50 billion in taxes for governments.

We also employ many skilled people in high quality jobs.

Shell plays a positive and, I think, sometimes understated role in many countries around the world.

Shell’s approach to sustainable development runs across all our activities. The foundation of our approach is running a safe, efficient, responsible and – of course profitable business – Whatever the oil price happens to be.

This means managing safety, environment and community involvement.

Secondly, we share wider benefits with the locations where we operate – the long term nature of our businesses means we can be a part of a community for decades.

Thirdly, as Chad explained before, we want to be part of shaping a more sustainable energy future.

This means providing more energy and cleaner energy, which is required for economic development in the face of growing environmental pressures.

Your company has a strong track record of transparency, and this is something we are strongly committed to.

For example on revenue transparency. Shell was a founding member of the EITI, the Extractive Industries Transparency Initiative, in 2002. We believe that the EITI approach to engaging countries, civil society and companies remains an effective way of providing greater transparency in government revenues.

We voluntarily published information on our payments to governments since 2012.

And this year we reported our upstream payments to governments, by country and project, in line with the new UK reporting requirements.

Our goal is to have zero fatalities and no leaks or other incidents that harm our employees, contractors or neighbours.

In 2015, we achieved the lowest recorded injury rates, and our spill volumes remained amongst the lowest we have experienced.

However, I am very sad to report that we lost seven lives in Nigeria last year.

These were the only fatalities we had in the company, all seven of them in Nigeria, contractors and staff. That underscores the difficulty of our operations in this area in a very sad way.

At the same time we do not accept that outcome and we re-double our efforts to improve from a very deep and low point that we had last year.

This tragedy underscores the difficulties we face there.

But we simply must do better to protect our people

Turning now to BG. We were pleased that so many of you supported our acquisition of BG at the general meeting earlier this year.

The $ 54 billion, shares and cash, combination with BG represents a tremendous opportunity to create value for both sets of shareholders, particularly in deep water and LNG.

I’m pleased to say to our new shareholders, previously BG shareholders, that your Shell shares have increased more than 8% since 15 February, when the deal was completed.

The combination with BG is a strong platform to refocus the company, to create a simpler and more competitive Shell, both now and in the future.

We are now 3 months into the integration and our first quarter results already showed that BG’s assets are contributing to our bottom line.

Now, let me make some comments on some of the other themes where you may have questions.

Firstly, the Netherlands. The Groningen gas field, which is operated by the NAM joint venture with Exxon, and partnered with the Dutch government, has been producing gas for decades.

However, this has resulted in a large number of earth tremors in the area, as a result of the depletion and subsidence around the field.

There is now an independent entity in Groningen called the Centrum Veilig Wonen, the Centre for Safe Living, in English, and it has been set up specifically to manage the claims that arise from these earthquakes.

You can imagine of course that many of the historical houses in this area had not been built with protection in mind because this is not a natural earthquake zone.

The Centre for Safe Living has independent oversight from the Government.

In addition to that, the Government set up a National Coordinator for Groningen who has presented a multi-year plan and has not just focussed on how to deal with the damage from earthquakes, but also how to deal with the quality of life in Groningen, the general economic situation

It has been an area that perhaps has not seen as much investment as the western part of the Netherlands

And let me be clear here, there is no discussion whatsoever that NAM would not compensate tremor-related damage, the preventive strengthening program, and regional improvement programme.

Shell supports NAM in the implementation of the measures as announced by the National Coordinator Groningen, in addition, Shell supports the position of NAM that people in Groningen are entitled to a fair distribution of costs and benefits related to natural gas production in Groningen.

Turning to Nigeria. This is the SPDC joint venture for onshore oil and gas.

It’s an area with large reserves, and very challenging socio-economic conditions.

This means criminal acts including shootings and kidnappings, widespread oil theft and pollution from that and the security situation appears to be deteriorating in 2016.

We have been reducing Shell’s exposure there, with $4.8 billion of asset sales since 2010.

But the situation in Nigeria remains challenging with widespread criminal acts and sabotage against SPDC’s interests, and tragic loss of life in 2015

The picture on this slide is rather shocking. It shows an illegal refinery in the Niger Delta, that uses stolen crude oil to make fuel.

You can see the pollution from that yourselve

SPDC cleans up spills in its fairways whatever the cause.

In 2015 we cleaned up and certified 184 sites, leaving a backlog of 270, including new spills in 2015..

In 2015 we saw a reduction in the number and volume of spills, both from our own operations and from sabotage. This was in part due to divestments as we have reduced our onshore portfolio there.

Getting access to the spill sites remains a difficulty due to the security situation and we continue to work with our stakeholders in Nigeria on improving security, on remediation and on local community engagement.

Turning to Oil Sands. Our thoughts are with the people of Fort McMurray, Alberta, 75 kilometres south of our Canadian oil sands operations and home to over 1,700 of our employees and many of our contractors.

Shell has a 60% stake in the Athabasca Oil Sands Project, or AOSP, which has production capacity of 255,000 barrels of oil per day.

On May 3 wildfires forced the evacuation of 90,000 residents from the city. Our employees went above and beyond the call of duty in helping to safely shelter and evacuate their colleagues and neighbours and their families.

In total, we sheltered and flew to safety over 9,800 people, and more than a few pets. Under stressful conditions, Shell people safely brought down mine operations to focus on their own safety and that of their neighbours.

While the wildfires continue to burn in the Fort McMurray region, we were able to safely and securely restart mine operations in order to support emergency response efforts and ensure customers in Western Canada had access to fuel.

On the operations side, we are continuing to find ways to improve performance in our mining operations and to reduce the CO2 footprint.

In 2015 we celebrated the start-up of our Quest CCS project at our operated oil sands joint venture in Canada.

Quest stored 370,000 tonnes of CO2 in 2015, and is on track for its expected sequestration of 1.1million tonnes per annum.

Turning to our Emissions. Shell’s direct GHG emissions, which we report on in our sustainability report, fell in 2015 to 72 million tonnes of CO2 equivalent. This is a reduction of 4 million tonnes from 2014 and 35% from the peak of our emissions in 2003.

We want to do more.

In April 2015 we signed up to the world bank zero routine flaring initiative last year with a target of zero routine flaring by 2030.

As an example, in Iraq, at the end of 2015 we achieved first commercial production of natural gas at our Majnoon field.

Gas from Majnoon, which was previously flared, now provides power to the domestic market through the North Rumalia power station.

And we expect further flaring reductions to come in 2016 as these and other gas gathering systems reach full capacity

Let me turn to climate change and related shareholder resolutions.

The Board supports resolutions that strengthen Shell’s ability to deliver safe and reliable energy today, and position the company to respond effectively to the challenges and opportunities of tomorrow.

Last year, the Board recommended to shareholders that they support a resolution calling for enhanced transparency on climate change.

In response to this resolution, we published the report Shell: Energy Transitions and Portfolio Resilience. This report sets out Shell’s efforts to strengthen the resilience of our portfolio, and our plans to invest in low-carbon energies.

We also included detailed information in our 2015 Sustainability Report on our emissions.

This year, we have a resolution from Netherlands-based retail shareholders, Follow This. It calls for Shell to embark immediately on a new renewables-only strategy.

The Board of Directors thank Follow This for this resolution.

But we recommend to shareholders that they should not support it.

Firstly, we want the Company to be able to respond to the opportunities and risks that lie ahead, tying the Company’s hands to a renewables only mandate would be strategically and commercially unwise.

Also, we believe that the scale of investment that is required, the multi-decades timescales required for energy transitions, and the risk of reduced returns to shareholders from an accelerated shift into renewables…means it would be unwise for Shell to simply swap investment in oil and gas for renewables…

Let me explain why.

Each of us in this room relies on a vast, inter-connected and reliable energy system that has been developed over the past 150 years.

The energy system, with its $55 trillion of infrastructure investments, must continue to evolve to meet growing demand.

Today, oil and gas supply around 50% of primary energy worldwide. Nearly half of industry is powered by oil and gas. Over 90% of transportation is powered by oil.

In its new report “A Better life with a Healty Planet, Pathways to Net Zero Emissions…that Chad mentioned…Shell’s scenario team shows there are plausible pathways for society to meet future energy demand while also reducing net zero CO2 emissions during this century.

It will require unprecedented collaboration combined with long term vision to lay the foundations for success.

It will also require different sectors of the economy to move at different paces.

Renewable energy sources will play an increasingly critical role in the future energy mix.

Electrification must expand its share of energy provision from around 20% globally up to around half.

Given the scale, it can’t happen overnight.

It will be necessary to combine the qualities of increasingly lower-carbon oil and gas with renewables to provide the full range of energy products.

Oil and gas will remain integral; especially where high energy density or very high temperatures are required in some forms of transport or industrial processes, such as the production of iron and steel.

Shell intends to be an active participant in this energy transition to a low-carbon future.

This means continuing to invest significantly in both oil and natural gas, which emits half the CO2 of coal when used to generate electricity; as well as looking for opportunities in low carbon energy.

It means continuing to progress technologies such as carbon capture and storage.

We are improving efficiency in our operations.

We’re reducing flaring.

And we are continuing to advocate for government-led carbon pricing, the most effective policy instrument for permanent reductions in emissions.

As for new energies, Shell has identified three areas where we can put more focus.

First, new transport fuels, such as biofuels and hydrogen-electric. Second, integrated energy solutions, for example wind and solar energy, which can be partnered with gas to handle intermittency. And third, connecting customers with new business models for energy.

Each theme builds on existing businesses and expertise. It will take time to develop them, and we will do this purposefully and carefully as we establish commercial potential at scale.

The next decades are a time of energy transitions.

Shell intends to adapt and change, to innovate and create, to trial and test; to win in a world that demands much more energy and much less CO2.

Let me finish with highlighting our strong track record on dividends, and dividends are the company’s main route to return cash to shareholders.

Over the last 5 years, in total, we have declared more dividends than any of our sector peer group.

The dividend is expected to be maintained at $1.88 per share in 2016, despite today’s lower oil prices.

This is an annualised figure of around $12 billion of dividends declared.

All of this underlines your company’s dividend track record and our commitment to returns to shareholders.

Cautionary note

Not for release, presentation, publication or distribution in whole or in part in, into or from any jurisidiction where to do so would constitute a violation of the relevant laws of such jurisdiction.

The New Lens Scenarios are part of an ongoing process used in shell for 40 years to challenge executives’ perspectives on the future business environment. We base them on plausible assumptions and quantification, and they are designed to stretch management to consider even events that may be only remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.

Reserves: Our use of the term “reserves” in this presentation means SEC proved oil and gas reserves.

Resources: Our use of the term “resources” in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions.

Organic: Our use of the term Organic includes SEC proved oil and gas reserves excluding changes resulting from acquisitions, divestments and year-average pricing impact.

Resources plays: our use of the term ‘resources plays’ refers to tight, shale and coal bed methane oil and gas acreage.

The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to companies over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures” and “joint operations” respectively. Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.

This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘goals’’, ‘‘intend’’, ‘‘may’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘plan’’, ‘‘probably’’, ‘‘project’’, ‘‘risks’’, “schedule”, ‘‘seek’’, ‘‘should’’, ‘‘target’’, ‘‘will’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended December 31, 2015 (available at www.shell.com/investor and www.sec.gov ). These risk factors also expressly qualify all forward looking statements contained in this presentation and should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, May 24, 2016. Neither Royal Dutch Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this presentation.

We may have used certain terms, such as resources, in this presentation that United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov.